The bidding round to fill the final 10 places in the selection of Enterprise Zones has recently closed with 29 bids being received. Successful bids, selected on their ability to deliver new jobs and a good return on investment, will benefit from simplified planning rules and a discount on business rates for 5 years. The business rates paid over 25 years will be retained locally and will be available for local investment with the relevant Local Enterprise Partnership having a role in how and where these funds are spent.
In addition, many local authorities are eagerly awaiting further news on when TIF will be available to them so that they can retain a portion of locally collected business rates and use that income to support borrowing for infrastructure investment.
But do we actually need TIF?
From what we understand, it looks as if part of this year's summer holiday reading could well be the consultation arising from the current phase of the Local Government Resource Review. This is likely to make clear the Government's aim of allowing local authorities to retain their business rates (save perhaps for a proportion which will go towards supporting disadvantaged areas).
On top of that, the Localism Bill will, when enacted, broaden out the discretion of local authorities to grant relief (or discount) on business rates.
Assuming that the proposal to allow local retention of business rates goes ahead, (and we believe it is the plan to have this in place from April 2013), local authorities will have the security of a significant income stream which they can then use to support borrowing. On that basis, TIF would not be needed. The income stream from a TIF zone would be less certain than the authority's historically evidenced business rate income overall in any event so TIF would pose higher risks.
No doubt the Government will seek to encourage local authorities to make wise use of their power to borrow in reliance on future business rate income, and to prioritise investments which will generate the highest levels of net growth. But Councils are likely to have wide discretion.
So what about Enterprise Zones?
Given the focus on the bidding round, surely they are needed?
Well, yes and no. In many ways local authorities will be able to replicate EZ conditions in their own areas themselves. They can already make local development orders (LDOs) granting planning permission for certain development within given areas. That amendment on business rate relief/discount mentioned above will allow local authorities to grant business rate discounts in LDO areas and, if they can retain all their business rates in any event, this will include rates arising in the LDO area.
So does it matter if any particular bid wins in the national EZ competition or not?
Well, yes it does. For starters, the Government will be funding the business rate discounts in "formal" EZs - in an LDO area, the local authority in effect funds any discounts it allows. Most importantly, the EZs which secure their places this summer through the national competition must be assumed to stand the best chance of generating new growth - minimising displacement. So the business rates generated from them should be "extra" income. In an LDO area, we do not know how rigorous the process around predicting real growth must be, and it is possible that new growth would be more limited.
So we should hope that where any local authorities look to establish EZ conditions but in their own LDO areas, they do so after careful consideration of the issues around economic growth so as to make the most of the opportunities this package of powers will give.